Springtime and Student Loans

Springtime also means graduation time for millions of high school students. This is often a time of mixed emotions for those students’ parents. On one hand, you celebrate the accomplishment of your child. On the other hand, you feel a bit nostalgic about how fast the time has gone. It feels like just yesterday that you tearfully walked your son or daughter into their first day of kindergarten.

Student Loans are the Norm

This can also be a time of great financial stress for parents. Especially for the those Americans who aren’t able financially to simply stroke a check for their child’s college education. For a few, there are academic, athletic, or need-based scholarships and grants. But overall, those are still few and far between. More and more, we see college graduates leave school with a load of student debt. According to debt.org, the average college graduate in 2017 had $38,000 of student loan debt.¹ The number of graduates (undergrad or post-grad) with over $100,000 of student loan debt continues to climb at an alarming rate.

The Changing Cost of College Over Time

In fact, over just the last decade we have seen the cost of college growing at a rate of almost 5%.² This is twice the rate of inflation in this country over the same period. Long gone are the days of paying for your entire college education through a summer job. The average cost of a 4-year in-state college education is $39,880 (4 years at Private college average will run you nearly $138,960)³. I certainly am not aware of any summer jobs that are paying this much! So it’s no surprise that student loan debts are approaching epidemic proportions (over $1.49 trillion in total outstanding student loan debt in the US as of December 20174).

The Impact of Student Loans on Jobs

For graduates leaving college with lots of debt, there will absolutely be unintended negative consequences. For example, we see a decline in the number of graduates going into badly needed social services like teaching, nursing, and social work. It is clear to me that a lot of this is due to the burden of debt. If you have $100,000 of student loan debt, the attraction of a higher paying job in finance or consulting can easily sway your decision away from what could be your passion—be it teaching or social work.

Additionally, we see a decline in entrepreneurship from our college graduates. Starting your own business is incredibly hard as it is. Tack on six figures of student loan debt, and the allure of a salary can be too tempting to pass up. I shudder to think of the entrepreneur that could have found the cure for cancer but ended up working on Wall Street so they could pay off their student loans.

Consider This When Your Child Applies for College

My advice to parents of high school students today: If you are unable to pay for a significant portion of the cost of college, help your son or daughter carefully weigh this decision. This is most important if they are considering a private or out-of-state college. I would not expect the majority of 18-year-olds to understand the financial implications of their college choice. I often hear stories where people carry student loan debt well into their 40s and even 50s. Therefore, if we burden generations of students with debt that might take decades to pay off, we also limit how much they can save for their retirement. We owe it to our kids to help them understand the expense of college before they take on an obligation that could affect them financially for the rest of their life.